Explanation:
Since the current index price is higher than the strike price, the buyer of the call option will exercise the index option. If the option is exercised, the gain to the buyer of the index option is:
Net gain on the call option = Gain on the option - Premium on the option
Net gain on the call option = 3,457 - 3,355 - 20 = $82
The formula used is: Net Gain = (Current Index Price - Strike Price) - Premium Paid = (3,457 - 3,355) - 20 = 102 - 20 = $82.
Q.732 Management at Digi Computational Investments has analyzed that the finance and banking sector of the U.S. is currently in turmoil. The sector has not properly recovered from the last financial crisis, and the new variables underlying the financial sector have already started tumbling. Taking this into consideration, Digi Computational Investments took a long position in a European call option on the Nasdaq-100 Index (NDX) which is composed of 108 non-financial companies at a price of $20 per index option. The strike price of the index option is 3,355, and the option expires in March 2020. If the current index price is 3,457, then estimate the total gain or loss for the buyer of the call option.
A
A. $102
B
B. $98
C
C. $78
D
D. $82
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